Customer Discovery
Get out of the building to test whether your hypotheses about customers and their problems are correct
Customer Discovery is the first step in the Customer Development model. Its purpose is to find out who the customers are and whether the problem you believe you are solving is important to them. The process tests whether the problem, product, and customer hypotheses in your business plan are correct.
The process begins with Phase 0, getting buy-in from the board and executive staff that Customer Development is iterative and worth investing time in. Phase 1 requires writing down all initial hypotheses about the product, customers, channels, demand creation, market type, and competition. Phase 2 involves getting outside the building to test whether customers have the problems you think they have. Phase 3 tests whether your product solves those problems. Phase 4 is a reality check to verify your findings and decide whether to iterate or exit.
A critical distinction is that the goal of Customer Discovery is to find a market for the product as specified by the founders, not to develop a new specification based on customer input. The initial product comes from the founders' vision. The Customer Development team's job is to validate whether there are customers and a market for that vision.
The process emphasizes learning, discovery, failure, iterations, and pivots rather than execution. You should ensure there is enough funding for two to three passes through Customer Discovery and Customer Validation. Always keep asking contacts for referrals to the smartest person they know, networking up the food chain of expertise.
- The initial product specification comes from the founders' vision, not focus groups or feature lists from customers
- The goal is to find a market for the product as specified, not to develop a new spec from an unknown market
- Get outside the building to learn what high-value customer problems are
- Write down all hypotheses before testing them so you can track what you learn
- Ensure enough funding for two to three passes through Discovery and Validation
- Always network up the food chain of expertise by asking who the smartest person is
- You are not selling in this phase, you are trying to learn and understand
- A solution in search of a problem is one of the most common startup mistakes
- Phase 0: Get Buy-InBefore starting, secure agreement from the board and executive staff that Customer Development is an iterative process worth investing time and resources in. Discuss whether the board believes the process is necessary and ensure there is enough funding for multiple passes through Customer Discovery and Customer Validation.Pro tipHave the founding team discuss with the board early whether they believe Customer Development is iterative and necessary. This conversation prevents conflict later when you need to loop back through the process.WarningWithout board buy-in for iteration, the company will face pressure to move forward prematurely when the natural learning process requires going backward.
- Phase 1: State Your HypothesesWrite down all initial assumptions about the product, customers, pricing, demand creation, market type, and competition. These hypotheses will be the foundation for everything you test. Document them as one or two page briefs covering the product hypothesis, customer hypothesis, problem hypothesis, channel hypothesis, demand creation hypothesis, market type hypothesis, and competitive hypothesis.Pro tipGetting your hypotheses down on paper is essential because you will refer to them, test them, and update them during the entire Customer Development process. The written summary makes learning visible and trackable.WarningDo not skip this step because you think you already know the answers. Unwritten assumptions cannot be systematically tested or updated based on customer feedback.
- Phase 2: Test the ProblemLeave the building and talk to potential customers to test whether they actually have the problems you think they have. Build a list of potential customers and use every contact to network to more. Ask customers to explain their workflow, their problems, and how they currently solve them. Understand the organizational chart of decision-makers, influencers, recommenders, and saboteurs.Pro tipAsk customers how much the problem costs them today in terms of lost revenue, lost customers, lost time, or frustration. You will use this number later in Customer Validation when you develop an ROI presentation.WarningDo not start telling customers what product you are going to deliver. Your natural instinct as an entrepreneur is to pitch your solution. Instead, listen to how customers work and what their problems are.
- Phase 3: Test the Product ConceptReturn to customers with your product concept and test whether it solves their problems. Present the product and gauge their reaction. Determine whether they agree the product addresses their pain, whether they would pay for it, and whether the pain is severe enough to justify the disruption of adopting a new solution. Also identify the budget and purchasing process.Pro tipAsk customers whether they would deploy the product in their department or company if the price were zero. If the answer is no, the product is not solving a problem painful enough to justify the disruption of adoption.WarningIf most customers fall into the category of finding the product interesting but not essential, do not proceed to Customer Validation. You need to iterate on your hypotheses.
- Phase 4: Verify and Iterate or ExitSummarize everything learned and verify whether the problem and product hypotheses are correct. Assess whether you have identified a problem customers want solved, whether your product solves it, whether you have a viable and profitable business model, and whether you can draw a day-in-the-life before and after product purchase. If the answers are not yet clear, iterate through the phases again.Pro tipYou may need to iterate multiple times. Try out several markets and user segments. If you need to reconfigure the product offering, modify presentations and go back to Phase 3.WarningDo not move to Customer Validation until you understand the market and have customers who cannot wait to buy. Pressing forward with unvalidated hypotheses wastes time and money in the next step.
FastOffice built an innovative device combining fax, voicemail, call forwarding, email, video, and phone. After raising eight million dollars and shipping the product at 1395 dollars, customers would not buy. Everyone's reaction was the same: great product, but not at that price. The company pivoted to selling to Fortune 1000 corporations with distributed workforces, but this strategy suffered from the same problem. VPs of Sales at major corporations were not losing sleep over their remote offices. FastOffice had a solution looking for a problem.
Rob Forbes did not sit in his office pontificating about a business vision. He was constantly out in the field listening to customers and discovering how they worked. Each catalog was treated as a learning experiment. Feedback from customers was combined with sales results, and appropriate changes were made. Staff meetings were devoted to lessons learned and what did not work.
Customer Discovery emerged from Steve Blank's observation that startups repeatedly failed by focusing on first customer ship without understanding whether customers would behave as expected. The FastOffice story exemplifies this pattern: a company that raised millions and shipped an innovative product, only to discover that customers were not willing to pay the asking price for a nice-to-have product. Blank realized startups needed a systematic process for testing their assumptions about customers before committing resources to sales and marketing.